Legal Question in Real Estate Law in California
I asked a question about "Title" the other day, that was misunderstood; So I will ask it again, THIS time, under the "true-life" scenario:
A Homeowner couple was the unknowing victim of a Con-Artist who somehow stole "Title" to their home, deeded it to himself, & took out a $500,000 Home-Loan for himself, as he did with many other victims. After he was caught & convicted, the couple was able to have HIS Deed "invalidated" and the Title to the home reverted back into their name.
But soon after, a "Notice Of Default" in the con artist's name was put on their door. Since 4 years had past since the crime was committed, it was too late to have "recission" done (under TILA) on the loan to have the debt wiped. And of course, the Con Artist had LONG spent ALL of the ill-gotten funds, so there was NO "victim's compensation" available.
So, the couple was actually on the hook for the mortgage. They contacted the lender, to see if the lender, as the "insured" would cash-in the 2 "Loan Title Policies" done on the loan to wipe it, comp the lender as the insured, then comp the couple as the "3rd Party" victims of "Fraud" and "False Impersonation Of The True Owner", 2 criteria under which the couple's situation qualified for a "Payout" under the Loan Title policies' "terms and conditions".
The couple was passed through 4 different reps for the lender assigned to the mater, the first two who either refused,or were NOT permitted by their supervisors to look at the Title, where the evidence of the "prior defect" via the con artist's illegal deeding LAY, informing them "that ALL the documents THEY had showing the con-artist owned the property would be deemed "legal" under their "origination policy".
And since the loan had "Closed" and was "Secured", and they had NO duty to look at the "Title" under law and wouldn't have known about the defect beforehand, they would prefer to foreclose for a profit, rather than to just come out even, via the Title Insurance payouts."
However, the 3rd rep for the lender DID agree to look at the Title after the situation was explained to him, but did so under the mistaken impression that the couple would be requesting to take over the loan and have a "Modification" done. But after he confirmed that he DID look at the Title, then learned the couple actually wanted the the Title insurance to resolve the issue, the rep reacted as though he had just wet himself, and hurriedly excuse himself off the phone, saying he'd "Look over everything again, promising to call them RIGHT back.
But instead, they heard from a new rep 4 days later, THIS time from the lender's legal Department, informing them that "Since they weren't an "Authorized" 3rd party" on the loan, they could NO longer speak to them about the matter!!
The couple has since filed a complaint with the CAG (Customer Assistance Group), a branch of the OCC, explaining the ENTIRE situation, & the actions of the 3rd rep for the lender CAN be confirmed, since the rep was a "Trainee" whose phone calls to the couple were recorded to evaluate his performance. A review and "Determination" on the filed compliant are pending.
But I don't understand WHY the lender would be "Running Scared" on this;If they have "NO Duty" to look at the Title under TILA, WHAT difference does it make IF a rep for the lender, "post-closing" a loan, DID voluntarily look at it, and ADMIT IT?? What's the BIG deal??
Does the rep's actions MAKE the LENDER officially "Liable" to resolve the matter?? And if SO, wouldn't their liability ONLY extend to them "Authorizing" the TITLE INSURANCE COMPANY TO TAKE LIABILITY via the 2 loan policies, since it was the Title Insurance company's' FAULT for missing the "prior, undetected defect" based on the con artist's actions??
Could there be MORE coverage done on this loan than known, where they'd have to cash IT in as WELL, to comp the couple on this issue as the "3rd Party"??
Because the WAY in which the lender has been acting here, It seems as if that there could be MUCH MORE for them to LOSE out on here, than just being forced to write-off a "Bad" loan via Title Insurance, especially in light of the fact that the lender has recently reached-out to the couple with an offer to do a "Permanent Fixed-Rate" Modification on the loan, IF the couple would agree to take it over!!
However the couple refused, and informed the lender that they will wait for the CAG to make a final "Determination" on the matter. They were also able to hire an Attorney to issue a TRO against the lender foreclosing on them in the meantime, as the CAG has NO "Judicial Authority" to stop them UNLESS it's via a "Cease And Desist" order done AFTER a "determination" is made, and made IN the couple's favor.
So, WHAT could this EXTRA "Liability" BE, should the CAG rules in the couples' favor then issues an "Enforcement Order" against the lender? What could make a behemoth lender act SO afraid of the outcome in this matter??
3 Answers from Attorneys
There is nothing in the facts you describe that indicate the lender is "running scared," other than the perfectly legitimate concern about: 1) violating customer privacy regulations by discussing with you a loan you claim not to be a party to, and which it appears you are, in fact, not a party to; and 2) possible fair debt collection practices act violations if they continued to try to get you to pay and then are found to knowingly be trying to collect a debt you do not owe. For those reasons their legal department is entirely correct that they should not be talking to you under the facts you describe, and the loan mod rep did the right thing referring the matter to their legal department. Nothing in this situation as described would give rise to any other possible basis for the lender having any liability to you or anyone else. The other factor in the third rep's conduct is that a lowly loan mod rep trainee would be totally in over their head when dealing with disputed title that could invalidate the entire loan. So of course he immediately signed off and "kicked it upstairs." Nothing you describe sounds like the lender is scared of anything.
By the way, a much more significant issue that you should be aware of and concerned about is that the mortgage might be valid and enforceable, in which case the last thing you want is the lender to get the title company involved. If the con artist's title was merely voidable, not void (a very tricky and technical legal distinction), and the lender did not know or have reason to inquire into the voidable title at the time the loan was made, then the lender may be a bona fide encumbrancer for value which would allow them to go forward with the foreclosure unless you make arrangements to pay the debt. And if that is the case, the title insurance company will not pay the claim, but they will provide the lender with litigation attorneys at no cost to the lender to take on your claim that your property is not subject to foreclosure. If your attorney has not explained all this to you, and is not already working on how to deal with these issues, you need another attorney who is very experienced and well versed in the law of void versus voidable land title and title instruments. This is not a case for a generalist.
If there were many other victims, I'd suggest contacting them to share information and legal costs.
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